naked capitalism

Anonymous says:

Some of the migrants that return home will have farming to fall back on. But many will find their previous lives not “resumable” because the land has been transferred / taken over for other purposes, including development in the inland provinces.

It is not an entirely pessimistic situation, because many of the returnees have acquired expertise and skills unimaginable to their former villages only a decade ago.

Some of them, but not all, will no doubt become very successful entrepreneurs in their home villages.

The problem is, what about the portion that is not successful or no longer have a social network (the first safety net) back home?

Those of the people that are at the most risk of being disruptive even though they are nominally eligible to receive social security payments (however little) from their local governments.

China’s crash (almost certainly heading toward recession now) is far more important to the global economy than generally believed, because they are the “plug” or incremental demand in so many markets, and also the hopes of many western firms for future growth — that justifies investment now.

D

ndk says:

I am under the impression that the hinterlands do not have highly productive soil.

Totally depends, Yves. Sichuan’s preposterous: it’s as if some Creator stuck his thumb in the middle of the mountains and said, “and there shall be green.” It’s even been irrigated for 2200 years. I’ve never seen such large fruit. Even the mountains are covered in fog and deep green, with corn and apples grown in the highlands.

The staple changes from rice to corn when the region gets colder and drier. Part of Qinghai have a lot of corn farming. I’ve also seen extensive inland farming of corn and occasional wheat in Shaan’xi, with much terracing. It starts to get pretty barren for most of northwest Gansu, and Xinjiang’s got sparse wheat farming amidst the massive mountains and deserts. There’s some famous cultivation of grapes and melons in those areas, but not much volume.

Improved farming practices could also have led to an increase in productivity.

There’s a whole lot of that left to do. Most of these farms are manual labor and subsistence. During harvest season, you can see enormous piles of fresh grains sitting in house courtyards waiting to be milled. It’s really cool.

I don’t think food is going to be a huge problem, from everywhere I’ve gone and everything I’ve seen. The one-child policy is well adhered to by the middle class, if not those at either end of the spectrum.

Food is cheap and plentiful. 5 RMB will get you a huge, excellent bowl of noodles at a restaurant, and bread rolls are 1 RMB.

But many will find their previous lives not “resumable” because the land has been transferred / taken over for other purposes, including development in the inland provinces.

There’s a fair bit of that, D, but not as much as I’d imagined. China is absolutely huge. The development pattern inland feels like America’s heartland. There are many small towns where if you swapped the signs and the people, I’d have sworn I was in Nebraska.

I’ll make my usual offensive remark here. I’m not worried about these people finding subsistence or livelihoods, because life in inland China can be leisurely. It’s much more relaxed and slow-paced than America, on par with or exceeding that of Europe.

In Chengdu, where I’ve spent the most time, I’ve seen young men who literally live in their copy shops, which are open if they’re not asleep, and I’ve seen crumbled old houses from the late 1800’s in the alleys where people just herd their favorite cats and watch a lot of TV.

Although there is simmering discontent with the CCP, I see far more outright hatred of our own government here. I continue to believe China is at little risk of domestic unrest.

Looking forward to bg’s perspective.

bg says:

“I continue to believe China is at little risk of domestic unrest”

I think the facts speak pretty loudly, there is lots of domestic unrest already. Roubini believes they need 6% gdp growth just to keep up with growth in labor.

There is as much arable land in China as the US, but 4x the population. Given that we each big burgers, export grain, and use corn for fuel, I do no think China is at risk of starvation. However middle class expectations are rising along was automobile purchase, obesity and the lot.

What was striking to me about Chinese agriculture is the small plots. It makes argiculture less efficient and more labor dependent.

I think to ndk’s point there was never very much to do for that average farmer/worker before. Returning to a plot of land (this is likely subleased rather than idle) is not full employment.

China is a intellegent and values based culture – more similar to America and Europe than most other cultures. The government propoganda has encouraged people to feel entitled, and to expect that they are the next world power.

although the culture has its plusses, the government (particularly at the local level where most governing happens) is not up to snuff.

There will be a lot of social and economic strain if too much of the China miracle unwinds. And that is exactly what appears to have started.

There is also the problem of overcapacity – Taiwan semiconductor fabs are running at 50%, cement factories are idle in the mainland, shoe and toy factories are folding. The high stock market (4x what it is now) overfed development, which amplified growth on the way up, and will amplify it going down.

Again, families are strong, and people won’t starve. But expectations are very high, and the government used high expectations to keep problems at bay.

Most of the more violent protests were from the lower classes. And that has helped the government. I expect the coming discontent to be from other parts of the society.

ndk says:

However middle class expectations are rising along was automobile purchase, obesity and the lot.

That’s a great point, bg. There is an aspiration and hunger there that I haven’t seen in the more developed countries I’ve been in.

Some of the places I’ve been have stunned me with over-the-top, gaudy decor. When I complained to a friend that I’d hoped to see something a little more rustic and classical, he said that many Chinese people felt they had suffered through uncomfortable and difficult living conditions for a lifetime, and that this was their chance to go as far upscale as they could.

Who knew capitalism was the real key to the cultural revolution?

Anyway, I meant domestic unrest in a stronger form than riots at toy factories. Those don’t really bother me. I was implying civil war or risk of government falling, and I really don’t see that.

Every time I pose a question about these topics to one of my mainland friends, they whack me on the head, roll their eyes, and say, “it’s a lot more complicated than that.” I think the principal applies here too.

There’s a lot of grey between the fall of the CCP and toy factory riots, and I would fully expect to see China somewhere in there.

ille_vir says:

One thing I see when I go to Japan is the abundance of Chinese-grown vegetables and other foods in the supermarket. Although there’s been something of a backlash against it recently, a significant amount of the fresh food in Japan is still imported from China. I think that’s one thing the extra agricultural capacity was going towards. With more mouths to feed back home, what’s going to happen? Will they still keep exporting for the cash?

Ben says:

Not only has much of the best arable land “been put to other use,” but mechanization has wiped out tons of Chinese agricultural jobs over the past three decades. The arable land is already being worked as much as can be, and the miniscule plots that most families have are not enough to support them no matter what combination of staple crops, chickens, pigs, and other crops that they throw together–that insufficiency was the impetus for the mass urban migration to begin with.

China has been experiencing substantial social unrest and increased urban crime (related) for roughly 7-9 years now. If they get anywhere near zero growth or, heaven forbid, a recession, then the ruling party will have to resort to some extremely severe methods to keep social order. I suspect that they will be supported by the urban intelligentsia in any such actions. If anyone has been around Henan’s cities lately, they will quickly grasp the dangers of a retracting economy. And we can only guess and worry about what the Party would need to do to maintain power in such a situation: war, forced famine, or worse.

I recall the Chinese curse, “May you live in interesting times.”

ndk says:

For anyone who hasn’t been out to the western half of China to see the human face, here are a few photos I took in Xinjiang, Shaan’xi, Gansu, and Sichuan. It might give you a flavor for the amazing variety in people and the type of life they live.

k says:

Please ppl, stop the pretentious use of phrase “Chinese curse”,”old Chinese saying”, etc.

http://en.wikipedia.org/wiki/May_you_live_in_interesting_times

Penn says:

“If GDP in the US, EU, and Japan contract at 5% this year…”

How optimistic. Japan and Germany’s exports declined by the same amount last year: 27%.

We’re looking at economic contractions above 10%, full stop.

CCT says:

Yves,

I think you over-estimate the scale of migration that has occurred over the last 3 decades.

While clearly a huge number of migrant workers left their villages for more productive jobs (which will now be lost)… the vast majority of these workers didn’t participate in this migration until 5-8 years ago.

Keep in mind what China’s rapid growth implies when you look in the other direction: China’s economy 10 years ago was roughly 1/3-1/4 the size it is today. So, clearly things WILL backtrack when these migrant workers go back to less productive agricultural jobs…. but even if the Chinese economy contracted by 70%, we’d be back to where we were 10 years ago.

That’s obviously a bit of an absurd example, since obviously that contraction would be anything but uniform… but I’m just trying to make a point. The vast majority of Chinese have come a long way in a very short amount of time… and giving a little back will not be as painful as you might imagine it to be.

I, like just the vast majority of all other Chinese in their 30s, grew up without indoor plumbing, effectively no electricity, and absolutely no modern appliances. I didn’t have a flushing toilet until I had graduated high school… and I’m (only?) 32 years old right now.

So, keeping that in mind… it will take a long, long economic contraction before I see true “desperate” poverty. However, I will say the Chinese government does need to maintain its social investment in pensions, health care, and education. If they seriously fail to maintain at least minimal standards in *those* three aspects, then they likely would have a revolution on their hands.

Timo says:

This seems to be another “projection”. First it was the Europe who was going to be much worse off and euro would collapse.

Now it is “most certainly” the Chinese who will soon have all out revolution there. Maybe, just maybe it is the Americans who are now at the bottom of the barrel…

What makes American nail salon and gym master consultants any better than Chinese peasants and factory workers? 70 percent of US GDP is now based on services for consumption with abandon. Chinese in their cities at least KNOW somebody in their family who is a farmer, Americans don’t.

Do you really think this JIT (Just-In-Time) based, BOTH for capital and for products, financing/logistic system is going to withstand and provide without any distruptions food and other essentials to all supermarkets across the country? ONLY one lousy week without daily deliveries to markets and malls and all American major cities without exceptions will be in chaos because markets will be empty! Don’t bother calling the National Guard since they are kicking ass in Iraq and Afganistan. FEMA…hah!

Then you as unemployed just happily go to the nearest supermarket and spend another two million dollars (during hyperinflation) of government money? I don’t think so.

Hope it does not go that bad but I am rather pessimistic about “Obama The Miracle Man” or any other miracles now showing up JIT.

You reading this are now part of the NEXT Greatest Generation. Challenges are mounting and huge…good luck!

Kafka says:

Why does anyone care about China? China lies about everything; has one billion slaves to do its bidding; no regulatory or environmental constraints; manipulates the markets almost as much as the U.S.; and without regard to the printing presses, owns an insolvent U.S. In fact, Paulson’s policies in large part were enacted to satiate his presumptive Chinese masters. I presume the China men are fully aware Paulson and his true masters can not be trusted and will likely inflate their way out of this mess. Quit pretending what goes on in China is real. The only real thing about China is its trade surpluses and substantial foreign reserves, nothing else. The true criminals reside here in the U.S. yet most recently Paulson tries to blame China for flooding the U.S. with capital, complete BS. Americans gotta quit lying to themselves.

Anonymous says:

I’ve spent the last two decades in East Asia and South Asia and have watched the transformation many call “miracle”, but which I cannot help but feel is just “buying off the shelf”. It’s great yes, but it’s also easier to grow at speed if someone else has already done the heavy lifting, i.e., invention.

There was a combination of awe/jealousy/resentment toward the lifestyle and achievements of the West in the mid-1980’s. Japan’s rapid growth served to provide hope and a sense of pan-Asian pride that Asia could compete with the West and not have to fall back on that old “5000 year history” mantra, and the Chinese period of great discovery and invention.

Japan’s bubble burst in 1990, but fortunately the rest of the world plowed ahead, creating markets for products and enabling the various “miracles” to materialize.

At the center of all of this was China. The government fed the nascent national pride by telling the people that their Motherland was the country of the future. The populace bought into it, even when their economic production was still little more than t-shirts and carnival prizes. Unlike Japan, though, where pride came not only from growth but also from the quality of the actual goods produced, China in general just went after the money. Pride came from numbers: growth figures, national wealth, percent of Mercedes purchases, etc. There were/are no Toyotas in China, in the sense of worldwide recognized quality.

The Olympics were the peak of pride and nationalism, even though the economy, and particularly the stock market, began to swoon long before the Opening Ceremonies. The Chinese were shocked when the Torch Relay was met by protest, as they could not believe that the world did not see them as being as great as they had dared to begin to believe they were.

Collectively, at both the governmental and societal level, the Chinese began to demonstrate just how weak and fragile their new found pride was. They made Jack Cafferty, the curmudgeonly social commentator on CNN, a national symbol of hate merely for a few off the cuff remarks.

“We’re growing 13%; what are YOU doing?” became the cry.

I saw this in China, and in other Asian countries where Chinese businessmen are regular visitors. There was an arrogance and a swagger that, while being reminiscent of 1960’s Americans and 1980’s Japanese, quickly got the folks from the Middle Kingdom the moniker of “Ugly Chinese” in much of Asia.

Now the last vestiges of what nurtured the growing pride is being taken away. Growth is falling. Folks are getting laid off and returning to the hinterlands, not as Conquering Heroes, but as the newly unemployed. Expectations have been dashed; hopes shattered.

Resentment first manifested itself against former employers. It has spread to resentment of government—against corruption and heavy handedness, and against the authorities for telling the people they were on the verge of becoming something that is not going to happen right now.

A wounded ego in one person is a dangerous thing. Wounded egos in a billion three is a potential cataclysm.

Bill says:

I like Curious’s question.

Much more than the US, I would think China is in a very good position to prop up consumption, if not production. They have $2 trillion that the US is about to inflate away. Why not consume it now? Or at least a portion of it. It’s time for some generous unemployment benefits. Maybe just send every citizen a monthly stipend on top of that. Let the people spend the money that’s built up at the center. It may sound like bread and circuses, but it’s also just fair. The people earned it. Spend the money and float the RMB.

Overcapacity: this makes sense with respect to particular industries. But as a generalized proposition in the face of unemployment, it doesn’t. I don’t know how to solve it, but even so, I know that it doesn’t make sense.

Anonymous says:

The thing that most people have missed here is the revolution in agriculture that has occurred in most parts of China in the past 10 years.

Adoption of modern inputs, from fertilizer, pesticides, to the use of new improved varieties of seeds, use of manufactured feed for raising farm animals from chickens, geese to pigs and cattle, to the use of greenhouses to raise vegetables all year round, are techniques that make Chinese agriculture nearly unrecognizable from the past.

What this mean is that the arable land metric is difficult to use in a sensible manner to understand what is the art of the “possible” in agricultural output.

The problem is, will the influx of returnees to these areas generate sufficient economic activity (from their new found skills) to support the people in the rural areas?

I am cautiously optimistic that this can be done.

D

macndub says:

Yves, I know nothing about China. Here’s how it works in India:

- generally, there’s a famine, or crop failure of some kind (monsoon failure, say), or credit crisis (most subsistence agricultural land is leased). Result: the land can no longer provide, so it’s off to Chennai or Kolkata or Mumbai to survive.
- few willingly leave their families and social networks in the hinterland. They are forced to go.
- statistically, this automatically drives up per-capita GDP, because someone who was a member of a cashless and barter economy has now joined the formal economy. Note that social wealth has not actually increased; it’s just been formalized.

Five years go by, and there’s a problem in the cities. Exports dropped, maybe the monsoon failed across the country instead of just locally. You’ve gone back to your village once to get married, and you and your family never, ever want to go back to a place where the **** moneylender decides if your kids are getting a good schooling or not. Plus, you’ve been joined by relatives, and they look up to you as a success. Now what?

The answer is that I don’t know. But from my anecdotal evidence, you stay in the cities and try to make it work. In India, the government lowers the price of food to stave off social unrest (never mind that this screws the farmers even worse). I don’t know about China, but in India, getting off the land is emancipation. Some would go back, I’m sure, but most wouldn’t.

Either way, per-capita GDP is down. But GDP a poor measure of social progress when so much of the economy is informal, so I don’t see it as a big indicator of potential social unrest. This is not my expertise, though, so please let me know if I’m mistaken.

Charles Frith says:

When reading a lot of economic posts that weigh up complex issues such as currency, employment, trade, imports, exports and so forth I tend to see the direction as who is more screwed than who.

Surely it’s plain to see that we’re all stuffed. Relatively speaking those lower down the per capita GDP foodchain have a softer landing but otherwise it’s all looking messy.

However, I do think the U.S. and E.U are more open to civil unrest than China. The reason is simple. Disopbedience isn’t tolerated.

Wait till 30 something Essex boy can’t fill up his car. It will be unpleasant.

The U.S. is even more scary when I think of the sheer bewilderment in the event of breakdown of the food production and distribution system.

OK…Just saying right…

Timo says:

“The EU, whose days are numbered, will collapse, the East will return to Mama Russia, and the West will once again tuck-tailed beg the US to bail them out.”

Probably you said the same thing about euro, didn’t you? Cannot possible survice because Europeans are so weak blah blah blah.

It is the USA whose days are numbered despite all that buu-haa macho talk BEHIND the mercenary army. We will see how you manage as country with real SHTF coming soon very close to you. Katrina really did show how internally weak and undisciplined country USA really is.

ES says:

Charles Frith: You are wrong, Americans are much too complacent to get angry. They’ll wait to be told what to do in a crisis for the most part, with a few manageable exceptions. They won’t target the government either.

In China, just like everywhere in Asia, people are much more likely to mobilize, especially against the government or any authorities. But this, as mentioned before, happens only when expectations are shattered and when there is a sign of weakness on the part of the authorities.

I think unrest in China is unlikely because nationalism is very high, and I believe that the authorities will have to feed this nationalism further by putting the blame of their situation on someone else, probably the US. People will be willing to go through rough times if they are provided for during a believed “temporary” phase of difficulties. This will give time to the government to make difficult changes to its economy and social structure without unrest directed at itself.

I think we will see the following:

1- Limited unrest due to massive job losses.

2- The government will quickly intervene to provide the people with the basic necessities for a certain time while acting to soften their situations.

3- The government will look for an alternative to reliance on anything American, an attitude it will make very public to increase nationalism and put the blame on the West, especially the US.

4- This will probably lead to a strengthening of relations among Asian countries, based on hopes and pride that this is an opportunity for them to free themselves from the needs of a weakened USA that will never go back to its former “glory”.

5- And then a finality, whatever it may be.

Anonymous says:

Hey, that’s my theory!

commenting on it.

Well, I mean. In the end we need hard statistic right? demogrpahic, social compositions, ground reporting. Unfortunately those numbers are hard to come by. I am using my general observation, from what I know/heard.

I simply don’t see China doing big implosion like US. Slowdown maybe, but not crashing like US. That place is liquid.

I guess we’ll just have to see months from now.

Anonymous says:

Sy Krass said…

Uh guys, that read 21.3% not 213%